Expert issues 'safety net' warning for savers

Brits are being urged to shore up their finances as a toxic mix of political drama and global instability sends shockwaves through markets with borrowing costs rising and investments turning volatile.

Government borrowing costs have surged amid speculation over the future of Sir Keir Starmer's leadership, in a move that threatens to push up mortgage rates and unsettle household finances.

Thirty-year gilt yields, which set government borrowing rates, have climbed to their highest level since May 1998, while 10-year yields have hit levels not seen since 2007 - a stark signal that investors expect tougher times ahead.

At the same time, oil prices have rocketed by more than 50%, jumping from just over $70 a barrel at the end of February to $107 by May 12, fuelling fears of renewed inflation pressure.

Markets are now pricing in as many as three interest rate hikes by early 2027, with some forecasts suggesting rises could come as soon as December 2026.

Meanwhile, the FTSE 100 plunged more than 10% in the weeks after the outbreak of war involving Iran, before staging a partial recovery - only to slip back into volatile territory.

Against this backdrop, experts say households must act carefully to avoid costly mistakes.

Sarah Coles, head of personal finance at AJ Bell, warned: "The drama engulfing Westminster this week is just the latest in a long line of crises that have been unfolding rapidly and unpredictably across the world for months.

"At times of volatility and uncertainty, it can be difficult to know what to do."

She has outlined six key steps to protect your money:

Don't panic and make rash decisions

Ms Coles cautioned against knee-jerk reactions, saying investors should ask themselves whether they would have made a move if markets had remained calm.

"If your investment portfolio was right for you yesterday, there's every chance it's right for you today too - even if it has dropped in value," she said.

Check your portfolio isn't too exposed

Market swings may reveal overexposure to certain sectors or assets.

While avoiding "massive wholesale changes", Coles said it can still make sense to rebalance investments to ensure they align with long-term goals.

Build a retirement 'safety net'

Those approaching or in retirement are particularly vulnerable to downturns.

Coles recommends holding enough cash to cover one to three years of essential spending, so savers are not forced to sell investments at a loss during market dips.

Review your savings strategy

With rate expectations rising, savings deals are becoming more competitive.

Households should ensure they hold three to six months' worth of essential spending in easy-access accounts, while considering fixed-rate deals for longer-term needs.

Protect yourself from rising mortgage costs

Higher gilt yields typically mean more expensive fixed-rate mortgages.

Borrowers nearing the end of a deal are advised to lock in a rate four to six months in advance - giving protection if costs rise further, while still allowing them to switch if rates fall.

Invest regularly instead of timing the market

Trying to predict the perfect moment to invest is notoriously difficult.

Instead, Coles recommends drip-feeding money into investments each month, allowing savers to benefit from both market dips and recoveries over time.